Services growth falters as new business weakest in two years

Indian services firms lost momentum in June as new business trickled in at the slowest pace in nearly two years, dashing hopes of a sustained pick-up in economic growth, a survey showed on Wednesday.

The HSBC Markit Services Purchasing Managers' Index fell to 51.7 in June from May's three-month high of 53.6, in a sign that Asia's third-largest economy is still struggling to climb out of a quagmire of low growth and high inflation.

Although the index has steadily held above the 50 mark that separates growth from contraction for nearly two years, it teetered on the brink in April before gathering pace in May.

But the latest data shows that any cheer over May's strong performance may have been premature.

"Service sector activity grew at a slower clip as new business flows moderated, which made businesses less optimistic about the year ahead," said Leif Eskesen, a chief economist at HSBC.

With domestic economic growth stuck at a decade low

and prospects of a strong global recovery still uncertain, overall demand for Indian services took a hit in June.

A similar survey for China showed lacklustre services activity in June with new orders growing at their weakest pace in more than four years, providing further evidence that the world's second-largest economy was losing momentum.

A sub-index for the Indian PMI that measures new business fell to a 20-month low of 51.9 in June from 53.2 in May, and consequently firms were less optimistic about the future.

To make matters worse, the Indian rupee fell to a record low against the U.S. dollar last month and this gave rise to inflationary pressures, the HSBC-Markit survey showed.

"Notwithstanding the slowdown, inflation readings firmed on the back of higher labour and raw material prices, with the depreciation of the rupee also cited as a factor," HSBC's Eskesen said.

A sister survey published by HSBC on Monday showed similar downbeat trends among Indian factories, with order books shrinking for the first time in over four years as price pressures started to pick up.